[Tax Corner] Coronavirus repatriations: implications for employers

With the safety and wellbeing of employees as every employer's immediate concern, questions about strategies to manage the impact of coronavirus are arising daily amidst increasing uncertainty around how best to react. Lee Mcintyre-Hamilton from Blick Rothenberg examines the implications for employers and offers some practical advice.

Back in 2014 at the height of the Ebola crisis, many employers repatriated their expatriate employees (i.e. UK employees seconded overseas) to the UK. Repatriated employees either resumed a UK role for a short period or continued their non-UK role from the UK, either in the UK office or from their home in the UK.

With coronavirus continuing to spread, many UK employers may be thinking about taking similar action or may have already done so, at least until the virus is under control. Indeed, there are some employees who may have come back to the UK to visit and now can’t return to China.

Whilst the top priority is of course clearly the health of employees, employers should be aware of the potential tax, social security and payroll implications of short-term repatriations to the UK from China.

Why? Because there may be actions required and, if these are not taken, there could be adverse financial and compliance implications for the employer and their repatriated employees.

What is the issue?

It may seem logical to simply keep repatriated employees on current arrangements when they come back to the UK from China. That is, have them remain being paid from China via a Chinese payroll or paid from the UK on a gross basis (with no PAYE or NIC). After all, it is only likely to be for a few weeks or months.

If only tax (and life) were that simple! Even very short stays back in the UK can lead to compliance implications and complexity for UK employers.

Main points to consider

Summary of the key considerations:

• Where non-UK resident employees (who normally work in China on secondment) come back to work in the UK for their UK based employer, then UK income tax is likely to be triggered on their UK duties. This would mean the UK employer being required to operate PAYE on the employees’ income, even where the income is paid from China and the period of repatriation is only a few months.

• Where employees repatriate to the UK and work from home, UK income tax would normally still be due on UK duties, even where the duties are in respect of the individuals’ role in China. The reason for this is that UK tax in these circumstances is triggered by the fact that the individual is working on UK soil, rather than the nature of those duties. 

• UK nationals are still entitled to the UK personal tax-free allowance, even when they are non-UK resident. Therefore, it is possible that the UK personal allowance will cover any income earned in respect of UK duties, but this should be reviewed.  

• National Insurance Contributions are a particularly difficult area for expatriate employees. Where the employee works back in the UK for 6 weeks or more, NIC are likely to be required by both the employer and the employee (again, even if the income is being paid via a payroll in China). Worse still, if the 6 week period is breached, NIC will then be required for at least a further 52 weeks, even if the employee goes back to work in China.

• For employees who are repatriated for a short period, it is likely that they will remain tax resident in China. This could mean a dual-tax liability (i.e. tax being imposed in China and the UK on the same income). In these circumstances, either the UK or China should allow a “tax credit” to mitigate the effects of double taxation. The UK/China double tax treaty would need to be consulted in order to determine the country which allows the credit to be claimed.

• Repatriation airfares to the UK are likely to be taxable, although there could be some tax relief in cases where employees have been seconded to China for 2 years or less or where the employer decided to repatriate the employee to the UK permanently.

This area is complex and the position above for each bullet can change markedly, depending on the specific facts and circumstances of each case. There could, for example, also be corporate tax implications. Therefore, it is worthwhile speaking with a tax advisor to establish the particular implications in your case.

What should you do now?

One other possibility is UK employers repatriating their employees to a non-UK country (i.e. where they, as the employer, are not based). We saw this during the Ebola crisis and it can be an effective solution if employees are sent to another country with which China has a double tax treaty since the employees can potentially remain in those countries for up to 6 months without triggering a tax liability.

Otherwise, if you are considering repatriations to the UK or have already repatriated employees, review the tax, social security and payroll position now. It will save you later time, effort and potential financial penalties for non-compliance!

Written by:

Lee McIntrye-Hamilton
Partner, Global Mobility & International Employment Tax
Blick Rothenberg
lee.mcintyre-hamilton@blickrothenberg.

With the safety and wellbeing of employees as every employer's immediate concern, questions about strategies to manage the impact of coronavirus are arising daily amidst increasing uncertainty around how best to react. Lee Mcintyre-Hamilton from Blick Rothenberg examines the implications for employers and offers some practical advice.

Back in 2014 at the height of the Ebola crisis, many employers repatriated their expatriate employees (i.e. UK employees seconded overseas) to the UK. Repatriated employees either resumed a UK role for a short period or continued their non-UK role from the UK, either in the UK office or from their home in the UK.

With coronavirus continuing to spread, many UK employers may be thinking about taking similar action or may have already done so, at least until the virus is under control. Indeed, there are some employees who may have come back to the UK to visit and now can’t return to China.

Whilst the top priority is of course clearly the health of employees, employers should be aware of the potential tax, social security and payroll implications of short-term repatriations to the UK from China.

Why? Because there may be actions required and, if these are not taken, there could be adverse financial and compliance implications for the employer and their repatriated employees.

What is the issue?

It may seem logical to simply keep repatriated employees on current arrangements when they come back to the UK from China. That is, have them remain being paid from China via a Chinese payroll or paid from the UK on a gross basis (with no PAYE or NIC). After all, it is only likely to be for a few weeks or months.

If only tax (and life) were that simple! Even very short stays back in the UK can lead to compliance implications and complexity for UK employers.

Main points to consider

Summary of the key considerations:

• Where non-UK resident employees (who normally work in China on secondment) come back to work in the UK for their UK based employer, then UK income tax is likely to be triggered on their UK duties. This would mean the UK employer being required to operate PAYE on the employees’ income, even where the income is paid from China and the period of repatriation is only a few months.

• Where employees repatriate to the UK and work from home, UK income tax would normally still be due on UK duties, even where the duties are in respect of the individuals’ role in China. The reason for this is that UK tax in these circumstances is triggered by the fact that the individual is working on UK soil, rather than the nature of those duties. 

• UK nationals are still entitled to the UK personal tax-free allowance, even when they are non-UK resident. Therefore, it is possible that the UK personal allowance will cover any income earned in respect of UK duties, but this should be reviewed.  

• National Insurance Contributions are a particularly difficult area for expatriate employees. Where the employee works back in the UK for 6 weeks or more, NIC are likely to be required by both the employer and the employee (again, even if the income is being paid via a payroll in China). Worse still, if the 6 week period is breached, NIC will then be required for at least a further 52 weeks, even if the employee goes back to work in China.

• For employees who are repatriated for a short period, it is likely that they will remain tax resident in China. This could mean a dual-tax liability (i.e. tax being imposed in China and the UK on the same income). In these circumstances, either the UK or China should allow a “tax credit” to mitigate the effects of double taxation. The UK/China double tax treaty would need to be consulted in order to determine the country which allows the credit to be claimed.

• Repatriation airfares to the UK are likely to be taxable, although there could be some tax relief in cases where employees have been seconded to China for 2 years or less or where the employer decided to repatriate the employee to the UK permanently.

This area is complex and the position above for each bullet can change markedly, depending on the specific facts and circumstances of each case. There could, for example, also be corporate tax implications. Therefore, it is worthwhile speaking with a tax advisor to establish the particular implications in your case.

What should you do now?

One other possibility is UK employers repatriating their employees to a non-UK country (i.e. where they, as the employer, are not based). We saw this during the Ebola crisis and it can be an effective solution if employees are sent to another country with which China has a double tax treaty since the employees can potentially remain in those countries for up to 6 months without triggering a tax liability.

Otherwise, if you are considering repatriations to the UK or have already repatriated employees, review the tax, social security and payroll position now. It will save you later time, effort and potential financial penalties for non-compliance!

Written by:

Lee McIntrye-Hamilton
Partner, Global Mobility & International Employment Tax
Blick Rothenberg
lee.mcintyre-hamilton@blickrothenberg.